Text / Dong Dong
Ed. / Meng Qiao
Recently, Xingjing Weiwu Group, a domestic comprehensive digital sports group, officially submitted a prospectus to the U.S. Securities and Exchange Commission to be listed on the NASDAQ exchange under the stock code "NIPG".
Xingjing Weiwu Group is a rising e-sports star that has attracted much attention inside and outside the industry in recent years, with two well-known e-sports teams in Wuhan, eStarPro and Ninjas in Pyjamas (NIP Club), and has a strong influence in the "Honor of Kings" and "League of Legends" projects.
In the e-sports circle, Wuhan eStarPro's outstanding performance in the KPL in the past few years has attracted great attention from the group. Outside the e-sports circle, Xingjing Weiwu Group is most famous for its largest shareholder, chairman and CEO - He Youjun, the son of the "gambling king".
If the company is successfully listed in the United States, it will become the "No. 1 esports stock in China". He Youjun will also lead Xingjing Weiwu Group into the next stage of development.
An acquired esports empire
The development history of Xingjing Weiwu is actually a history of mergers and acquisitions.
In 2017, He Youjun established the V5 E-sports Club. In the second half of 2018, V5 won the League of Legends Pro League (LPL) quota in the form of a competitive bid and created a League of Legends division. V5, which debuted in the LPL arena, missed the playoffs in 2019, but the operating entity, Weiwu E-sports, announced in October of that year that it had received hundreds of millions of yuan in Series A financing.
In 2020, the Wuhan eStarPro team, founded by the former well-known Warcraft player Sun Liwei (ID: xiaOt) and won the 2019 Glory of Kings World Championship Cup, encountered a financial crisis, and He Youjun chose to intervene. In the end, V5 and Wuhan eStarPro announced a share exchange merger to form Xingjing Weiwu Group.
The merger is the largest e-sports merger in China, and Xingjing Weiwu has also become the only club in China to have both Wuhan KPL and Shenzhen LPL home stadiums. After the merger, Xingjing Weiwu Group has become a rising star in the e-sports industry with the outstanding performance of eStarPro and V5 in the KPL and LPL arenas.
After the merger with Wuhan eStarPro, He Youjun did not stop the pace of mergers and acquisitions. In January 2023, Xingjing Weiwu Group announced the completion of the merger with NIP Team, and the English name of the group was also changed to NIP Group.
According to the prospectus, Xingjing Weiwu Group acquired the NIP Club for a total consideration of US$168 million and formed a goodwill of US$109 million.
Image from NIP prospectus.
Following the merger, Star Games has won 19 titles in 4 major esports leagues in the top 10 esports leagues in the world, including CS:GO, Honor of Kings, Rainbow Six and FIFA.
After two mergers, the shareholding structure of Xingjing Weiwu has undergone tremendous changes.
According to the prospectus, He Youjun holds 14.2% of the shares of Xingjing Weiwu Group, is the largest shareholder and serves as the group's CEO. Hicham Chahine, the owner of the NIP Club and co-CEO of the group, holds 12.4% of the shares through the holding organization, making it the second largest shareholder. Sun Liwei, the founder of the eStar team, holds 8.7% of the group's shares, and Wuhan Tourism Group holds 8.5% of the shares through Yuyun Enterprise Management Partnership (Limited Partnership).
However, even the merged Xingjing Weiwu Group has not been able to get rid of the loss-making situation.
From 2022 to 2023, Xingjing Weiwu Group's revenue will increase from US$65.835 million to US$83.668 million, with gross profit margins of 5.7% and 8.6%, respectively. Under US generally accepted accounting principles (GAAP), in 2022 and 2023, the net loss of Xingjing Weiwu Group will be US$6.306 million and US$13.258 million, respectively, with a loss ratio of 9.6% and 15.9%, respectively.
On a non-GAAP basis, Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), which better reflects the operating results of the Group, was -$648,000 and -$1,731,000, respectively. Adjusted EBITDA margins were -1.0 percent and -2.1 percent, respectively.
This seems to reaffirm the reality that esports clubs are difficult to monetize.
An "MCN organization" in the guise of e-sports
From the perspective of revenue structure, Xingjing Weiwu Group is not so much an e-sports company as an MCN institution.
The revenue of Xingjing Weiwu Group mainly comes from three parts: e-sports team operation, talent management services, and event organization. Among them, the talent management service is mainly for contracted Internet celebrities (online entertainer in the prospectus), providing training, platform recommendation, management and live content control and other services, which is no different from the services provided by other MCN institutions. Talent management services (hereinafter referred to as MCN services) are the largest source of revenue for Xingjing Weiwu Group.
In 2022, the MCN service revenue of Xingjing Weiwu Group will reach US$38.556 million, accounting for 58.6% of the total revenue. In 2023, the revenue of this business will reach US$52.611 million, a year-on-year increase of 36.45%, and the proportion of total revenue will also increase to 62.9%.
Image from NIP prospectus.
According to the prospectus, as of December 31, 2023, Xingjing Weiwu Group has more than 36,000 signed Internet celebrities, with a total of 66 million followers on social platforms.
In 2020, Wang Jiaer became a minority shareholder of NIP (the number of shares held was not disclosed). On its own, it has about 33 million followers on the Instagram platform. Such a proportion of followers can't help but remind people of the previous relationship between Faze Clan and star Snoop Dogg.
Faze's prospectus at the time of its IPO indicated that the club as a whole reached about 500 million fans, but 200 million of them came from the influence of Snoop Dogg himself. After Faze Clan's share price plummeted, Snoop Dogg resigned as a director, and the club's fan base centered around him fell apart.
Therefore, how much overlap between NIP and Wang Jiaer's fans is a question worth paying attention to. The lessons of the past tell us that the fan value that esports clubs build up by relying on the personal influence of celebrities cannot replace the value of the club itself.
In addition, Xingjing Weiwu Group has signed a KPL e-sports player and Wuhan eStarPro King Glory member "Promise", who has participated in "Creation Camp 2021"; Douyu anchor "Saoyi", which has 1.7 million subscriptions on the Douyu platform; Fitness blogger "Liu Taiyang" has more than 6.8 million followers on all platforms, etc.
Compared with MCN service revenue, Xingjing Weiwu Group's e-sports-related revenue accounts for less than half of it.
In 2022, the operating income of the e-sports team of Xingjing Weiwu Group was US$21.717 million, including bonuses, league sharing, sponsorship advertising, player transfer and loan income, e-sports talent management services (mainly live broadcast for e-sports players), IP licensing revenue, sales revenue of branded goods and some reality show service fee income, accounting for 33.0% of the total revenue.
After merging into the NIP Esports Club, the revenue of this business in 2023 will be US$21.656 million, accounting for 25.9% of the total revenue.
In addition, the event revenue of Xingjing Weiwu Group will be US$5.562 million and US$9.401 million in 2022 and 2023, respectively, accounting for 8.4% and 11.2% of the total revenue, which is relatively small.
However, even if MCN services account for more than half of the revenue, it has not yet been able to contribute profits to Xingjing Weiwu Group.
According to the prospectus, the MCN business of Xingjing Weiwu Group is still in a state of gross loss. In 2022 and 2023, the business will have gross losses of $0.9 million and $0.8 million, respectively, and gross margins will be -2.3% and -1.6%.
In terms of e-sports-related businesses, the gross profit from the e-sports team's operating business increased to US$6.6 million from US$3.9 million in 2022 (mainly due to the consolidation of NIP e-sports clubs), and the gross profit margin increased from 18.1% to 30.6%. The gross profit of the event hosting business increased from US$0.7 million in 2022 to US$1.4 million, and the gross margin increased from 12.6% to 15.0%.
At least for now, the biggest role of Xingjing Weiwu Group's MCN business is to expand the scale of revenue, avoid relying too much on e-sports-related businesses with uncertain results, and form diversified revenue sources. However, from the perspective of gross profit, its MCN business still needs to be developed.
E-sports club IPO, is it a false proposition?
Before Xingjing Weiwu Group, there were many e-sports clubs that landed in the capital market, and the more well-known ones were the Danish Astralis team and the American Faze Clan team. The former went public in December 2019 but was officially delisted in August 2023. The latter went public in July 2022, but nearly seven months after its listing, the share price has fallen below $1. The market value also fell from the initial $1 billion to $56.16 million, a drop of more than 10 times. In March of this year, Faze Clan was hastily delisted.
The dismal performance of companies such as Faze in the capital market has directly shattered the market's illusions about the esports industry: even though the number of esports viewers has surpassed many traditional sports events, the profitability of esports clubs is still a problem.
Among these clubs, Faze is the best of the best. Not only does it have an excellent record in CS:GO, but it has also formed a unique subculture that has created a new trend among the younger crowd.
In Faze's last financial report (Q3 2023) before its delisting, its revenue performance is still quite good. In the first three quarters of 2023, Faze's total revenue reached $48.621 million, of which brand sponsorship revenue was as high as $28.054 million, content revenue was $10.641 million, consumer product revenue was $2.328 million, and e-sports revenue was $7.285 million.
It's fair to say that Faze has taken the esports trend to the extreme, as evidenced by the $28.054 million in brand sponsorship revenue over three quarters. However, due to the profligacy of costs and expenses, Faze has been in a state of serious losses and eventually had no choice but to delist.
The picture comes from NIP's official Weibo.
On the whole, it is not difficult for e-sports club players to expand their sources of income, or trendy brands, or co-branding, or MCN, but most of them are trapped in cost control, and it is difficult to achieve profitability in the end.
However, the performance of Faze and other listed esports clubs is hardly representative of all esports clubs. In fact, from the prospectus of Xingjing Weiwu Group, we also see the possibility of stable profitability of e-sports clubs.
One of the most recognizable teams in CS history, the NIP Club was acquired in 2016 by Hicham Chahine, who has extensive experience in the financial investment industry. Compared to the Faze Clan, the NIP is clearly lighter. In 2022 and 2023, the NIP Club's revenue will be $9,398,300 and $7,372,800, respectively, corresponding to gross profit of $5,435,000 and $3,716,000, and corresponding net profit of $1,675,700 and $256,600.
Image from NIP prospectus.
The main source of revenue of the NIP club comes from the operating income of e-sports teams, which mainly includes IP licensing, sponsorship advertising, and participation in e-sports leagues. The total revenue of these revenues is not large, but the NIP Club has excellent control of costs and expenses, with a gross profit margin of more than 50%, a marketing expense rate and an administrative expense ratio of about 40%, and finally a stable profitability.
Although the overall gross profit margin of Xingjing Weiwu Group is relatively low (less than 10%), its total sales expenses and management expenses only account for about 20% of total revenue (after deducting equity incentives from management expenses in 2023). To a certain extent, this also proves the management ability of the senior management of the group headed by He Youjun.
Especially considering that the gross profit margin of Xingjing Weiwu Group's e-sports team operation business and event operation business continues to increase, the gross loss of MCN business has narrowed, and the possibility of achieving profitability is also increasing.
The previous failed listing experience of Astralis and Faze Clan also forced us to think more about the path to NIP's listing. Of course, their failure does not mean that the listing of "e-sports clubs" is a false proposition.
Compared to the previous two, NIP's IPO plans are in a very different context. At a time when the e-sports industry is becoming more mature and paying more attention to cost control, NIP's listing ideas are inevitably different from those of Astralis and Faze Clan. After learning the lessons of the past, the performance of this first stock of Chinese e-sports clubs is still worth looking forward to.